Pension transfers and consolidation

Iona: Hello, I'm Iona Bain, and welcome to A Little Bit Richer brought to you by Legal & General. Now today, we're talking about a topic that might not make your heart race, but honestly it's the question that I get asked the most when I'm out and about, talking to people up and down the country. Should I combine my pension pots? Yes, today we're talking about pension consolidation.

Time and again I hear things like, " Should I do this? Where do I even begin? Is it worth the hassle?" So today, we're going to blast through this and prove that it's actually easier than you might think because even just having an awareness of where all your pension pots are will go a long way to making you feel more in control of your pension savings. And by doing a wee big about them now, it's going to give you a much clearer view of your financial future. So joining me today to cut through the jargon is Mike Crossley. He heads up the Workplace Pension Consolidation Team at L&G, so he's just the man for this job.

Welcome, Mike.

Mike: Thanks.

Iona: So let's just set the scene. Why do people end up having more than one pension pot?

Mike: So loads of people, as they move around between different jobs, they'll typically get enrolled in a new workplace pension each time they start a new job. So I've known people who've got to the age of 30 and had three, four, sometimes five pensions really early in their career. And of course, you've also got people who might be self- employed who might have opened a SIP.

Iona: So people can end up with all these pots, and yet they don't know how easy it is to move all of them into one place. Talk us through that process. How straightforward is it?

Mike: Yeah, it's a lot more straightforward than I think a lot of people assume. I think when you talk to people about transferring a pension, they assume it's going to be pages and pages of forms to fill in, but the reality couldn't be further from that. Most pension providers now will allow you to request a transfer online, and most of the time that can go through without a paper form in sight.

Iona: Oh, really? Could you do that theoretically through an app as well?

Mike: Yeah, most pension providers now will have an app that you can log into, and often you can start the pension transfer process there. Now of course, it does vary from who your old pension provider is, how it works, but I've known transfers complete in as little as three working days from that initial online request.

Iona: Okay, so that's very encouraging. The question is why should we bother? We've all got a hell of a lot to do in our lives, so why add consolidating your pension pots to that to- do list?

Mike: So the first thing I'll probably say is the clarity it can give you can be really powerful. If you've got three, four, five different pensions, it can be tricky to understand how much have you saved, are your savings on track to give you what might be a good income in retirement. So bringing them together can be a really positive first step towards getting on top of your retirement savings.

Iona: So it's a question of not forgetting that you have pension pots, and therefore being able to maximize what you have much more effectively?

Mike: Yeah. It's really important not to be one of those people whose lost an old pension and it can happen so easily. As people move house and stuff, they forget to tell their pension provider. And then when you try and remember, "Oh, what was that pension I had five, 10 years ago," really easy to fall into that trap. So bringing them together perhaps after you've just changed job and you've got a new pension is a great way of keeping on top. And actually, reducing your life admins. You're not then needing to tell five different pension providers each time you move.

Iona: That's a very good point. Often, when we are reluctant to do something in the short term, actually we're just storing up more problems for the long-term. It could actually save us time in the long run.

So younger workers in particular might end up having quite a lot of small pension pots, but is there a pot that would be too small to make all this worthwhile?

Mike: The short answer is no. Even if you've got a really small pension pot, let's call it £ 200 maybe from that café job you did for six months, it's still worth transferring that across, consolidating it into your pensions and not losing it. Because £ 200 today might not feel like very much money in a pension, but actually it's going to be worth bringing that across because that's going to add a small extra bit of money. And of course, it might grow for another 20 or 30 years and be worth something a bit more by the time you actually retire.

Iona: And when we're talking about the different values of pension pots, and you mentioned large pension pots and small pension pots, how much are we talking here?

Mike: I've seen pensions being transferred worth as little as £ 50 and worth as much as £500, 000 and everything in between. As little rule of thumb, maybe I'd think of a larger pot being £ 50,000 or more.

Iona: And is the process the same regardless of the value of your pot?

Mike : Yeah. The underlying process is exactly the same whether it's £50, 50,000, or even £500, 000.

Iona: But I imagine if it is higher value, then you're going to want to take financial advice perhaps?

Mike: Yeah, I think I would certainly be reading the paperwork a little more closely on one of those larger pots than a small one.

Iona: But also, is there a reason to transfer your pensions into one pot because of how your investments might perform, or maybe because you can get lower fees?

Mike: So if you've got different pensions, it's really worth having a look at the different fees that you might be paying on them because what might look like a really small difference, like 0. 5%, can actually add up to something really substantial over the years. So checking that difference before you transfer is definitely on the list.

 Aside from the fees, it's also worth understanding that different pensions could be invested in different ways. So each pension you've got via your employer will have probably gone into a default fund unless you've chosen your own funds under there. So as well as differences between default funds in different pension schemes, there's also different ranges of investments that you can choose if you're interested in doing it yourself.

Iona: So you can definitely take more control of your pension and how it's invested if you want to?

Mike: Absolutely.

Iona: And also, if you're a bit younger, could you choose maybe to have your pension invested in a more adventurous way?

Mike: Yeah. Many pension providers will try and have their default fund allowing for that. So they'll usually be set up to give you growth in your early years and want more protection as you get closer to retirement. But if you feel confident and you know what you're doing, you can absolutely navigate through the fund range available and choose something that's appropriate for your appetite for risk and growth.

Iona: That's good to know. And what do competitive fees look like on a pension?

Mike : Most pension providers will charge on a percentage basis of the total value of the pension pot. Sometimes it splits into what's known as an annual management charge, the cost of running the pension, which is separate to a fund management charge, which is the cost of the underlying investment. Other providers will just have a single all- in fee that combines the two. So listeners might see differences in the fee structure between their different providers, but of course it's quite simple to add the two if they are separate and compare them to one overall fee.

Now, what's competitive. Workplace pensions are actually capped, so they shouldn't ever cost more than 0. 7%. But often, they'll be less than that, particularly if you've worked for a big employer who might have negotiated a much lower fee even you'd typically be able to get if you came to a pension provider directly. So sometimes I can be as low as 0. 2% for all of the fees combined.

Now, if you think about that then, perhaps you've got one that's 0. 7% and another one that's 0. 2, and you're starting to think, " Well, does that make much difference?" Let me give you an idea. So if you've got about 25, 30 years away from your retirement and you've got a £10,000 pot, moving that from a 0. 7% to a 0.2% one could make as much difference as £ 2000 by the time you get to retire, assuming the underlying investment performance is the same. So it can make a substantial difference.

Iona: That could pay for a holiday.

Mike: It could, indeed.

Iona: A very nice one. So what about people who are not sure if they have an old pension or they don't know how much might be in there? Where can they go to find out more?

Mike: So the first thing is to have a look through your old paperwork and see if you can find any old statements with policy numbers on or whatever else. If you can find those, you've made a really, really good first step. If you haven't got any even little traces of a pension, but you think it might be there, the government actually has a free tracing service that's available online. So you can go on there, search for your employer and see who that pension might be with. Private pension providers sometimes offer pension tracing services that can help you do that as well.

Iona: So even if you can't remember what the name of the pension provider is, so long as you can remember who you worked for, that could just give you enough of a clue to go hunting for that lost pension?

Mike: Absolutely.

Iona: So that's really good to know. And are there some types of pensions that you wouldn't transfer?

Mike: Yeah, this is a great point. So if you've been working in the public sector and you've maybe got something like an NHS, Armed Forces, or civil service pension that might be a defined benefit or career average type pension, those work fundamentally different to a defined contribution you might have got through a private company. So some of those pensions, you won't even be able to transfer even if you wanted to.

Iona: Right. So it's not even an option?

Mike: Most of the time, it's not even an option. Some defined benefit schemes will let you, but you do need to take advice from a specially- trained financial advisor. So that's off the cards for most people, it won't normally be in your interest to do that.

Iona: But if you have a defined contribution pension, then it is something that's still worth considering? Or are there certain situations where even then, you have to be a bit careful?

Mike: Yeah, I think that's a good way of thinking about it. Most of the time, particularly if your pensions been set up in maybe the last five or 10 years, it's unlikely to have any sort of special benefits that you might lose on transfer. But some older defined contribution pensions have what we refer to as safeguarded benefits attached to them. So this could be something like a guaranteed annuity rate that you get more when you retire, or it might even be invested in a with- profits fund where there could be a significant penalty for not seeing it through to maturity. Now, if you've got any doubt at all as to whether you might have any of those old or special features, you can always call your provider and check. They'll always tell you if that's the case.

Iona: That's a good piece of advice. If in doubt, find out. Now, Mike, you've promised that this is actually a lot more straightforward than people think it might be, so I'm going to hold you to that. Talk us through what the transfer process actually involves, and what you need to look out for, and what you need to bear in mind.

Mike: So if you've got an old statement in your hand for one of your old pensions and you've got the policy number, the first thing you might do is go on the provider's website, see if you can log in. Check the value, check the charges, have a look and see if there's any sort of special features there. Once you've done that and decided that transferring is the right thing to do, go to your new pension provider's web portal or app and see if you can start the process online. That's usually going to be the simplest way. Most of the time, all you'll need is the name of your old provider and a policy number, complete the online form, read all the risk warnings carefully of course.

And what then happens is lots of stuff behind the scenes which you don't necessarily need to worry about but can be useful to understand. So your new pension provider will then contact your old provider on your behalf. If the old provider goes, " Yeah, we've got a pension for you," what they'll do is they'll actually sell down any investments that you're holding in that old pension scheme. Once it's in cash, they'll send it across to your new provider. Your new provider will usually automatically invest it in line with how your pension's already invested, whether that's the default fund or something that you've chosen yourself. So it can be very, very straightforward in terms of it coming across and you might just get a little SMS after five days or a couple of weeks saying it's all done. You log in and you see it there.

Iona: That's very reassuring because I think a lot of us do believe that it's going to involve, as you were saying before, lots and lots of paperwork and it was going to take a long, long time, but that might not be the case.

Mike: Now, it can really vary by who your provider is. There are still some old school providers out there who insist on having a paper form and it will take a little bit longer. But what I'd probably say is persist with it, don't be put off by that big envelope and long paperwork because once you've done it, you only have to do it once, and then your pensions are together.

Iona: True. You've just got to embrace the admin, Mike, that's the message here. And also, I think people will be thinking, " Actually, I don't know whether it's a good idea for me to transfer my pension across." Is there any kind of safeguard in place there to ensure that people are not making the wrong decision here?

Mike: Yeah, pension providers definitely put some safeguards in there to stop you doing something really reckless or that might not be in your interest by accident. So for example, if you've got one of those old pension policies and it's got a guaranteed annuity rate or something like that, as soon as your new provider goes through to your old provider, the old provider will raise a flag and go, " Sorry, there's a safeguarded benefit here. This pension can't be transferred without advice," and they'll knock it back to your new provider who will probably drop you a message or give you a call and let you know. There's some good safeguards in there to stop people making a really big mistake.

Iona: That comes as a relief I'm sure to lots of folks listening and watching. And the other question is does it cost anything?

Mike: Now, transferring your pension is normally free with most providers. So you shouldn't be charted either by your old provider for transferring out, or from your new provider for transferring in.

Iona: And people might be wondering if they need to get financial advice in order to transfer their pension. Is that the case?

Mike: The simple answer here is that financial advice can be very worthwhile, but it's probably not relevant for most people just thinking about bringing their old pension pots together, particularly if all you've got are five or six quite low value pots from your early career.

Now, if you've got a really big pot where the difference in charges is going to make a big difference or you're concerned that maybe you have got some special benefits, but you can work out whether they're worth keeping or whether you should transfer, a financial advisor can be really, really helpful in helping you make sense of all that and make a sound decision. You just need to be aware that they will usually charge for their services.

Iona: I can imagine, Mike, that pension providers have really had to up their game in terms of making it easier for people to consolidate their pensions because gone are the days when people would have a job for many, many years, if not for life. And therefore, this issue of people having lots of pension pots and not really knowing what to do with them, that's something the pensions industry has had to really respond to, hasn't it?

Mike: That's right and so much has changed around this in the last 10 years. Lots of that's been driven by digital, so being able to do a lot more stuff via apps and online portals. But you're absolutely right, there's a lot more pension pots out there, lots more people wanting to do it. And the really nice thing actually is that the people who have completed it are often surprised at just how easy it was. I have seen people transfer sometimes seven, eight, nine different pensions and they've been amazed at the fact they could just do it all online and how quickly it's all come together.

Iona: Yeah, I can imagine that must feel very satisfying as well, not thinking that there are all these different pension pots in all these different places, and just knowing it's all there in one place. I definitely have that kind of personality where I like that kind of order in my life and I'm sure lots of other people are the same.

Mike: Yeah.

Iona: And people watching and listening might have heard of something called the Pensions Dashboard and they'll be thinking, " Well, when that comes along, I'll be able to see all my pensions in one place." So why should people still be thinking about pensions consolidation even if or when that happens?

Mike: Yeah, this is a great question. So we're expecting pension dashboards to be available from late 2026 and that will be a fantastic resource for people to see all their pensions in one place, and it should give you real clarity on how much you've saved and where is it. However, it doesn't mean that bringing your pensions together isn't worthwhile because there's still those factors like the differences in charges potentially or the difference in investment. And of course, once you can bring them all into one place in a single pension, it can still be better for clarity and planning for the future.

Iona: So you've given us a really helpful whistle- stop tour there, Mike. I wonder if we can finish off with your top three tips for anyone whose thinking about moving their pension savings?

Mike: Number one, do not be put off by the potential hassle. It is going to be easier than you think and you'll feel a lot better when it's done. Number two, take those few minutes before you press go just to read through, check the charges in particular because that can make a difference especially when it's over a 20 or 30- year period to retirement. And the last one is look out for those scammers. So if someone calls you out the blue or starts offering you incentives to transfer, you just need to ask yourself, " Why is this person so keen to make me transfer?" So just pause, think about it, and if it looks like it might be too good to be true, it probably is.

Iona: That is absolutely excellent advice, Mike. Thank you very much.

Mike: Thank you.

Iona: Well, I hope that's helped clear the muddy waters on pension consolidation for you and inspired you to take on a bit of life admin. If this episode has made you feel empowered to get a hold of your pension savings, then why not share the podcast and help others get a little bit richer too?

Next time, we're breaking down tax with Accountant Tim Paul and lots of easy wins to help you legally reduce the amount of tax deducted from your salary. This podcast is brought to you by L&G. You can keep up with the show on YouTube, TikTok, and Instagram @legalandgeneral. And if you have a question or a topic you'd like answered on the show, then you can get in touch on our socials. We'd love to hear from you. Until next time, thanks for listening, and see you soon.